With so many renters in the United States, there is a lot of opportunity for property owners to become landlords and make extra money. Believe it or not, 44 million households now rent. However, you'll need to run your rentals like a business to see a profit.
You need great rental property accounting to do this. Let's look at five tips that will help you manage your rental books.
1. Track Every Transaction
You must have exact details for all transactions for your rental properties. This means all sources of income and every penny you spend to maintain your properties.
This information will give you a comprehensive overview of how your properties are doing. It will tell you if you're making the right choices, you will be in profit, and if you should pivot to another strategy. Detailed records will also allow you to track expenses accurately and take every deduction possible to minimize your tax payment.
2. Keep the Paperwork
It isn't enough to just have a record of a transaction in your ledger. In some cases, you may need to prove an expense or income for tax purposes.
You need great records if you need to prove something in the future. Keep property maintenance receipts, invoices, contracts, and everything else that proves what you say on financial documents.
3. Use Separate Accounts
If you're a small landlord, you may think it's fine to run everything in the same bank account. However, this becomes an issue when you need to start tracking your rental income and expenses and prove it's for your rental business.
Handle all your landlord bookkeeping tasks with a separate bank account. You want your personal and business finances separate to ensure there is no confusion about business income and expenses.
4. Make Use of Software
The last thing you want to do when managing landlord finances is to do everything manually. It takes too much time to manage spreadsheets, paper accounts, and other tasks. On top of that, it's easier to make mistakes.
Software makes things much easier. There are many property management and accounting programs that will help you automate much of the process and ensure your books are correct.
5. Get Accounting Help
You likely don't want to spend your time managing finances as a landlord. Although it is a necessary task, you can probably spend much of your time on more productive tasks.
Don't hesitate to outsource this task. You can work with an accounting firm or property management company with accounting services. Doing this will free up your time and allow you to focus on growing your real estate portfolio.
Optimize Your Rental Property Accounting
Investing in property and getting rental income is a great way to make extra income and grow your net worth. However, you'll still need to do your due diligence with finances to ensure you make smart financial decisions. Use the rental property accounting tips above to manage your books and make profitable real estate investments.
Are you looking for a property management company to help with rental property finances? At PMI Greater Philadelphia, we offer accounting help along with our many other property management services. Contact us to learn what we can offer.
